interview
Emerging markets have long been considered price drivers on the gold market. But now something else could be the catalyst that takes the price of gold to the next level, says a gold expert.
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Capital: Mr. Read, are the central banks of emerging countries currently buying gold because there are signs of a renewed US presidency of Donald Trump, which would be associated with more conflicts?
JOHN READ: Gold was in demand from emerging markets in the first half of the year and we saw highs during Asian trading hours on Wednesday too. However, recent data shows that demand from emerging markets has slowed.
What is the reason for that?
This is partly due to the People’s Bank of China halting its reported gold purchases and a drop in jewelry demand outside of the wedding season in India. This year, geopolitical uncertainty has been a key theme driving investors globally into gold, and emerging markets have joined the trend. We have seen time and again that gold serves as a strong hedge and safe haven in times of uncertainty and heightened risk.
Is the expectation of an interest rate cut by the US Federal Reserve another price driver?
Expectations of rate cuts, especially against the backdrop of a slowing US economy and falling inflation, have revived interest in gold among Western investors and traders. This renewed interest is also reflected in the ETF market: our latest ETF report highlights that after the strongest month since May 2023, we have seen three consecutive months of inflows into ETFs, including the July run so far.
How do falling interest rates affect the price of gold?
Lower interest rates typically lower the opportunity cost of holding non-interest-bearing assets like gold, making it more attractive to investors. This is important as expectations grow that the Fed will cut rates, possibly as soon as September.
How sustainable are the highs in the gold price?
The gold market seems to be at a crossroads: we are currently seeing weaker demand for gold from emerging markets, even though the price is at an all-time high. In addition, western traders are starting to take an interest in gold, which is boosting gold ETFs, but net inflows are still relatively low. If western investors continue to return to the gold market at this rate, it could be the catalyst that takes the gold price to the next level.
Source: Stern
